36% of Law firms could go out of business

It has been reported that R3, an association of business recovery professionals, is warning that around 36% of law firms in the East of England face going out of business over the next 12 months as they struggle with the recession as well as industry reforms. Quoting the so-called “Tesco Law” – the Legal Services Act - which allows non-lawyers to invest in and own legal businesses, R3’s Eastern Region chairman Shay Lettice said “Supermarkets, for example, can now set up shop in the legal marketplace, offering low-cost services such as conveyancing, wills and simple contracts. Most likely to be hit by this professional reform are the smaller high street firms, who will find it increasingly difficult to compete in this broader market”.

The latest quarterly national benchmarking survey of the Law Society’s Law Management Section also reveals a worsening cashflow outlook for firms throughout the country.

Andy Poole, Legal Sector Director at Armstrong Watson, comments, “The Legal Services Act will have a major impact on the provision of legal services over the coming months and years. However the other changes in the profession at the present time - such as the Jackson Review, banning personal injury referral fees, extension of the personal injury fast track portal, removing work from the scope of legal aid, cutting legal aid rates - are having a bigger short-term impact on law firms and may cause a number of firms to cease trading”.

Armstrong Watson’s specialist legal sector team is working with law firms throughout the UK to improve their businesses, particularly where profits and cash collection have reduced due to the uncertain economic conditions and changes in the profession.  Law firms which find themselves in this position should take early advice from specialist accountants who can help them to focus on profitable areas, improve management information and early warning mechanisms, work alongside the bank, prepare detailed short-term and medium-term integrated forecasts, review fee earner productivity and reduce lock-up by speeding up the processes of billing and cash collection.

Andy Poole
Legal Sector Director

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